By Paul R. La Monica
A tiny closed-end fund with a stake in Elon Musk's SpaceX is continuing to enjoy a gigantic pop since Election Day. Investors have to be super careful.
The Destiny Tech100 closed-end fund, which has nearly 38% of its portfolio in private shares of SpaceX, has soared more than 300% since last Tuesday. Shares skyrocketed nearly 65% alone on Friday and were up almost another 15% early Monday morning.
Analysts at Bespoke Investment Group said in a report Friday that the move in the fund -- which also owns smaller positions in top privately held unicorns such as ChatGPT owner OpenAI, Fortnite developer Epic Games, and fintech Stripe -- was "insane."
"This is NOT something to mess around with unless you have extensive knowledge about closed-end funds and how they work," the Bespoke analysts added. "We are simply highlighting its move as an example of some of the craziness that has gone on in markets since Election Day."
The main reason the move is so crazy? DestinyTech100 now trades for around $41 a share, nearly 8 times its net asset value of $5.15 a share. (Net asset value, or NAV, is the value of assets minus liabilities.) The company said in its second-quarter results that the total value of the investments in its portfolio as of June 30 was $56.4 million. But the fund now has a market value of more than $425 million. In other words, it is trading at a ginormous premium to the actual value of its investments in privately held companies.
Destiny Tech100 is clearly getting a boost thanks to President-elect Donald Trump's election victory, which investors are betting will be good for Musk's many businesses thanks to the fact that Musk was a vocal supporter of Trump and big financial contributor to his campaign. Tesla shares are up more than 35% since Election Day.
Sohail Prasad, CEO of D/XYZ, the firm that runs the Destiny Tech100 fund, told Barron's in April that the fund is "a reflection of how people really want this access and exposure to companies shaping the future." D/XYZ wasn't immediately available for comment about the fund's recent price.
But for anyone looking to take on the significant amount of risk associated with owning companies before their initial public offering -- and remember that Musk has been adamant that he is not looking to take SpaceX or its Starlink subsidiary public -- there are other options that might be a little less risky.
Cathie Wood's Ark Venture Fund, a closed-end interval fund, also has big stakes in SpaceX, OpenAI, and Epic Games. And the price of its shares have gone up only about 1.4% since last Tuesday. (Interval funds, however, are fairly illiquid.)
Morningstar senior analyst of equity strategies Jack Shannon also pointed out in a report in April, just after DXYZ debuted and skyrocketed from about $9 to more than $100, that closed-end funds like DXYZ "have unique risk; namely, their tendency to trade at premiums and discounts to the underlying portfolio's value."
Shannon added that the fund's holdings are all "illiquid, hard-to-price securities," and he concluded that "investors would be wise to stay on the sidelines."
He further pointed out that other mutual funds that own stakes in SpaceX and other private companies -- including funds from Fidelity, Baron Capital, and Neuberger Berman -- do not trade at "a huge NAV premium just to get a piece of SpaceX."
Investors should also realize that Destiny Tech100, despite the 100 in its fund name, currently has stakes in only 22 companies. (It is targeting 100 positions.) So, even if the IPO floodgates open next year under Trump, there might be better opportunities than DXYZ for investors who are looking to take advantage of that trend.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 11, 2024 11:23 ET (16:23 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments